Stock splits are back in fashion in the USA – but investors should take the hype surrounding the splitting up of shares with a grain of salt. In recent months, companies such as fast food restaurant chain Chipotle Mexican Grill, retail giant Walmart, software company Microstrategy and chip designers Nvidia and Broadcom, have sought to make their shares more affordable for a broader investor base with such measures. However, what was already true during the internet bubble of the late 1990s also applies to the renaissance of stock splitting – a split may lower the share price, but it by no means makes a stock cheaper.

In the case of Chipotle, there was a 50 for 1 stock split. The stock is no longer trading at over 3,400 dollars as it was in mid-June, but at around 54 dollars. The P/E ratio is around 53, reflecting the gloomy US consumer environment, and the departure of CEO Brian Niccol, who is moving to Starbucks.

Chipotle is not the only company to justify the stock split by wanting to tap into new investor groups at lower share price levels. According to the company, Walmart was also pursuing the goal of enabling more employees to participate in purchase programmes with its „three for one“ stock split announced at the end of January. And Deckers Outdoor, the footwear company known for its Hoka brand, which is popular with runners, is hoping that a planned stock split, in which shareholders will receive five new shares in additional each existing share at the beginning of September, will improve liquidity and increase trading activity, which will ultimately also drive up the share price.

What is lost in these considerations is that though an entry into Deckers at a price level of 940 US dollars may be too high an individual investment for many retail investors, it has long been possible to trade shares proportionately, and in significantly smaller increments, via numerous brokers. For example, the shares of travel provider Booking Holdings, which recently traded at almost 3,600 US dollars, have become available to a large number of investors.

The argument for better accessibility is, therefore, not based on rationality but on pure market psychology – namely the widespread feeling among investors that it is better to hold a share in full than only in part. However, this only makes a marginal difference when it comes to exercising voting rights. Anyone who could only afford a fiftieth of a share before the Chipotle stock split, and can now finance the purchase of a total share, will find it just as difficult as before to get their dissenting opinions heard by significantly more influential institutional investors at the next Annual General Meeting.

But as long as market psychology holds up, and investors continue to see stock splits as a sign of self-confidence on the part of board members and executives, they can offer positive effects. According to Bank of America, US companies have historically delivered a median return of 25% to their shareholders in the twelve months following a stock split, while the comparable figure for the S&P 500 is 11.9%. However, it is dangerous if market participants perceive the announcement of the stock split alone as an entry signal. This is because such a measure is generally taken when a share has already made significant price gains. In such cases, expectations of future performance are usually all the higher – if they are even slightly disappointed, the positive psychology can quickly turn into the opposite. As simple as it may sound, investors should, therefore, focus more on fundamentals, such as earnings performance, and less on cosmetic measures.